I found this (you need Java to play with it) and since have been fascinated by cloth physics. I don't understand the logic behind the code at all though...is there any essential reading or resources for beginners?
Cloth physics is actually only spring physics, where each "point" of the cloth is connected to its immediate neighbors (usually in a square grid) by a spring.
Pulling on a point then stresses the springs surrounding that point, which stretch temporarily. As they retract, they accelerate the neighboring points, which then "pull" on their surrounding springs.
Here's another demo (demonstrating their spring library). Look to this paper for some details.